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The Daily Journal of the United States Government

Notice

Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to Updating the Range of Haircuts To Be Applied to Eligible Clearing Fund Securities

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
[1]
notice is hereby given that on May 10, 2011, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared primarily by NSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and to approve the proposed rule change on an accelerated basis.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Back to Top

The purpose of this filing is to modify certain haircuts currently applied to Eligible Clearing Fund Securities.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Back to Top

In its filing with the Commission, NSCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NSCC has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

Under NSCC's Rules and Procedures (“Rules”), Members are required to make deposits to the Clearing Fund with the amount of each Member's required deposit being fixed by NSCC in accordance with one or more formulas (“Required Deposit”).
[2]
A Member may satisfy its Required Deposit with a cash deposit, and NSCC may permit a portion of the Member's deposit (with the exception of the deposit of a Mutual Fund/Insurance Services Member) to be evidenced by an open account indebtedness secured by Eligible Clearing Fund Securities. Eligible Clearing Fund Securities consist of certain Treasury, agency, and mortgage-backed securities.
[3]
Eligible Clearing Fund Securities pledged as Clearing Fund collateral are subject to haircuts.

The Rules permit NSCC to fund settlement by pledging Clearing Fund deposits as collateral for loans, and NSCC maintains a committed borrowing facility for this purpose. Haircuts imposed on collateral pledged by NSCC under the borrowing facility are being increased by the lending syndicate, andtherefore, NSCC must make corresponding increases in its Clearing Fund collateral haircuts in order to maintain alignment with the haircuts under the borrowing facility.

Accordingly, NSCC proposes to modify Procedure XV of the Rules to update certain haircuts applied to the types of Eligible Clearing Fund Securities to maintain conformity with the requirements of its lenders.
[4]
Specifically, NSCC proposes to increase the haircut applied to: (i) Agency notes and bonds from the current range of 2 to 7 percent based on term to a proposed range of 7 to 10 percent based on term, (ii) zero coupon obligations of agencies from the current range of 5 to 12 percent based on term to a proposed 7 to 18 percent based on term, and (iii) mortgage-backed pass-through securities issued by Ginnie Mae from 6 percent to 7 percent. A complete listing of the haircut schedule and the proposed changes is attached to NSCC's rule filing as Exhibit 5 and may be viewed online at http://www.dtcc.com/legal/rule_filings/nscc/2011.php.

Subject to approval by the Commission, the proposed haircut changes on Clearing Fund collateral will become effective on May 16, 2011.

NSCC states that the proposed rule change is consistent with the requirements of the Act
[5]
and the rules and regulations thereunder applicable to NSCC because it facilitates the prompt and accurate clearance and settlement of securities transactions by adjusting NSCC's haircuts on Clearing Fund collateral so that NSCC maintains adequate collateral levels to support a borrowing, should it become necessary, to complete settlement.

B. Self-Regulatory Organization's Statement on Burden on Competition

NSCC does not believe that the proposed rule change will have any impact or impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

Written comments relating to the proposed rule change have not been solicited or received by NSCC. NSCC will notify the Commission of any written comments it receives.

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:

Paper Comments

All submissions should refer to File No. SR-NSCC-2011-02. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filings also will be available for inspection and copying at NSCC's principal office and on NSCC's Web site at http://www.dtcc.com/legal/rule_filings/nscc/2011.php. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submission should refer to File No. SR-NSCC-2011-02 and should be submitted on or before June 9, 2011.

IV. Commission's Findings and Order Granting Accelerated Approval of the Proposed Rule Change Back to Top

Section 19(b) of the Act
[6]
directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. The Commission finds that the proposed rule change is consistent with the requirements of the Act, in particular the requirements of Section 17A of the Act,
[7]
and the rules and regulations thereunder applicable to NSCC. Specifically, the Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act,
[8]
which requires, among other things, that the rules of a registered clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. The Commission finds that NSCC's rule change is consistent with this requirement because increasing the haircuts that are applied to the securities that NSCC's members deposit as Clearing Fund collateral should help ensure that NSCC maintains adequate collateral levels to facilitate settlement in the event of a member default, which should therefore help minimize risk to NSCC and its members. Accordingly, the proposed rule change should improve NSCC's ability to assure the safeguarding of securities and funds in its custody or control or for which it is responsible.

NSCC has requested that the Commission approve the proposed rule change on an accelerated basis so that it would become effective on May 16, 2011. By granting accelerated approval to the proposed change, NSCC will be able to adjust its haircuts for securities pledged as Clearing Fund collateral by May 16, 2011, so that NSCC's haircuts remain in alignment with the haircuts under the borrowing facility. As a result, NSCC should be better able to maintain adequate collateral levels to protect itself and its members in the event of a member default. Accordingly, the Commission finds good cause to approve the proposed rule change prior to the 30th day after the date of publication of notice of the proposed rule change in the Federal Register.